Star Metro - Shares in Google owner Alphabet sink on profit miss, ad slowdown

Net profit slid 25 percent from a year earlier to $26.2 billion in the July to September period, or $2.12 per share, well short of expectations by analysts surveyed by FactSet.

Alphabet booked an $8.7 billion loss on its equity investments, which includes a large stake in SpaceX.

Revenue rose 25 percent to $127.6 billion, slightly below the roughly $128 billion analysts had forecast.

Advertising revenue grew 11 percent to $82.0 billion, short of expectations. Revenue from Google's search business, still the company's largest source of income, rose 12 percent to $63.4 billion, slowing from 17 percent growth in the previous quarter.

YouTube, now the most-watched outlet on American TV screens, saw advertising revenue grow nine percent to $11.2 billion, down from 13 percent growth in the previous quarter. YouTube Music and Premium passed 150 million subscribers worldwide, including trials.

Google Cloud, which rents computing power and AI tools to businesses, saw revenue jump 103 percent to $30.7 billion, ahead of analyst expectations.

The company said sales of its in-house AI chips, known as TPUs, contributed significantly to that growth. Operating income for the unit tripled to $11.1 billion.

Google is also selling its TPU chips to outside companies, in a growing challenge to market leader Nvidia. OpenAI plans to buy some of the chips, according to media reports this week.

Alphabet's "Other Bets" division, which includes robotaxi company Waymo, posted revenue of $372 million and an operating loss of $2.0 billion.

Waymo now provides more than 500,000 paid rides per week across 15 US metropolitan areas and aims to reach one million weekly rides by the end of the year.

Alphabet spent $51.4 billion on capital expenditures during the quarter, mostly on data centers and AI chips, more than double the $24 billion a year earlier.

Its latest forecast for capex spending is between $195 billion to $205 billion in spending for 2026.

The spending kept free cash flow negative for a second straight quarter, at minus $9.1 billion.

During the quarter Alphabet raised $28.7 billion by selling bonds and $12.4 billion by issuing new shares to help pay for its AI ambitions.

Google has stepped up the pace of its AI releases since a delay to a flagship model in July raised questions about whether it was falling behind rivals OpenAI and Anthropic.

It launched Gemini 4 at the end of September and later released a version focused on cybersecurity.

The Gemini app has reached one billion users. Google's AI models now process nearly 32 billion tokens, or units of text, per minute, more than four times the level of a year ago, the company said.

Anthropic, the maker of the Claude chatbot, is also one of Google's largest cloud customers. It has committed to using up to one million Google AI chips.

In September, a US judge declined to order Google to sell off parts of its advertising technology business, imposing restrictions on how it operates instead.

J.Hall--SMC